Financially, Microsoft appears to be able to weather some Windows turbulence. For the fiscal year ending June 30, Microsoft’s Windows and Windows Live division had the third-highest revenues at the company. The Windows unit had fiscal 2012 revenues of $18.37 billion, down from $19 billion in 2011. Microsoft’s enterprise units, which focus on software for corporations, had stronger sales. The Servers and Tools division delivered fiscal 2012 revenues of $18.7 billion, up from $16.7 billion in 2011. The Microsoft Business Division, which includes Office, had fiscal 2012 revenues of $23.99 billion, up from $22.5 billion in 2011. In terms of operating income, the Windows division is No. 2 at Microsoft behind the business unit.

On the Surface

Experts at Wharton say that the fate of Windows 8 may rest on whether Microsoft can successfully build its own hardware to showcase its new operating system. And so far, Microsoft has made a few missteps.

Along with the launch of Windows 8, Microsoft introduced its Surface device — a tablet with a keyboard that snaps onto the screen. The Surface uses the Windows RT operating system, a version of Windows 8 that runs on a more power-efficient processor and provides longer battery life. Microsoft’s starting price for the 32GB Surface is $499 without the keyboard. The catch is that while the Windows RT Surface runs a version of Microsoft’s Office products, it isn’t compatible with the full range of existing Windows programs.

Microsoft said that in January it will launch a 64GB Surface with Windows 8 Pro starting at $899 without a keyboard. The Surface Pro will get roughly half the battery life of the Windows RT Surface but be compatible with previous Windows programs and include a stylus for notes. Both Surface versions have keyboards starting at $119.

According to Fader, the Surface has a few hurdles to overcome to be a hot seller. The biggest issue is that Microsoft chose to sell the Windows RT Surface only in its own stores, which are few relative to the number of outlets Apple has. On December 11, Microsoft announced that the Surface will be available at retailers such as Best Buy and Staples. “Microsoft made a grave mistake on distribution,” notes Fader. “I love the first concept [the Surface with Windows RT], but it’s in the hands of very few.”

Matwyshyn predicts that the Surface with Windows RT could have a tough time threading the niche between a laptop and a tablet. “The Surface is an improvement in work integration and usability. But Windows RT is a mistake. The Windows RT [operating system] feels crippled in comparison to Windows 8″ due to the incompatibility with previous Windows programs. “If Microsoft views the future of Windows 8 as being tied to the mass appeal of the Surface, that may prove to be overly optimistic,” she adds. “If Windows 8 and Surface don’t do well, [there will need to be] a tough internal discussion within the company on Microsoft’s positioning and core competencies.”

According to Whitehouse, the Surface could be interesting for corporate customers, but he says that “the jury is still out” until a key question is answered: “What’s the niche that the Surface can fill that will give Microsoft a unique advantage [in the enterprise]?”

Technology industry insiders also wonder how the Surface and other Windows 8 devices, which are largely new designs, will fare. Intel CEO Paul Otellini said on the company’s third quarter earnings conference call that many devices are trying to be the best of both worlds by combining laptops and tablets. However, “we honestly won’t know for 12 months” what device ultimately moves the most Windows 8 volume, he noted. Not surprisingly, Apple CEO Tim Cook views the Surface as a product that tries to do too much. “I suppose you could design a car that flies and floats, but I don’t think it would do [both] of those things very well,” he said during Apple’s earnings conference call on October 25.

Spread Too Thin?

Some analysts say that Microsoft may be trying to juggle too much at once. Currently, it has enterprise juggernauts like Windows Server, Dynamics CRM and Office. On the consumer front, it has Windows Phone, Xbox and Bing, the No. 2 search engine behind Google.

Yet Wharton management professor David Hsu argues that Microsoft is doing the right thing by having several experiments and businesses going at once. “The general idea is that you want to spread your bets and hit as many tipping points as possible. Microsoft is forced to even out its bets in multiple directions.” The company’s enterprise business is a traditional strength, says Hsu. The Surface is an experiment in tweaking Microsoft’s partnership with hardware vendors and represents the software company’s move to integrate its own software with hardware, he notes.

If Microsoft refrains from going after the tablet and smartphone markets, it risks watching Apple and Google take its computing crown, Hsu says. A rule of thumb, he adds, is for companies to pursue related markets as long as there is some benefit even if the efforts don’t succeed. “If Microsoft strikes out on tablets and smartphones, there should be some value in learning” from those initiatives that can be applied to the development of future products. “There will be convergence over time.”

In addition to mobile devices, another potential area of growth for Microsoft is “cloud computing,” which offloads local processing to Internet services. Microsoft has various efforts on the cloud front — including Azure for businesses and Office 365. “The organization is pushing toward the cloud,” says Matwyshyn. “Moving in multiple directions is a good thing to see.”

The larger question is whether Microsoft can help its newest efforts gain a foothold in the market. After all, the company was pushing tablet computers in 2000. “They have brilliant ideas in the organization, but the ideas get lost internally,” Matwyshyn notes. “Microsoft can be first to market with a great idea and not understand the consumer.” For instance, Microsoft’s initial tablets were bulky laptop hybrids and required a stylus.

One side effect of Microsoft’s penchant for chasing multiple markets is incoherent marketing, says Fader. “Microsoft’s problem is that it has a mishmash of products. It has divisions with different business models, and the umbrella branding is off — it has all of these [products], and the consumer doesn’t know where [they fit in].” One possible way of reorganizing would be for the company to split its enterprise and consumer businesses, Fader suggests, but it’s too early for that decision. Overall, Microsoft needs a more coherent tale to explain its businesses and a brand that can span multiple products. “Apple has an umbrella brand…. Google has a good umbrella brand. But Microsoft represents an operating system company stepping out of its comfort zone.”

. The PC market will continue to decline because tablets have shown people that if all you do is surf the web and check email, you don't need a full on computer anymore. I don't know why people are still pretending this isn't a fact and accept that computing culture has changed. It doesn't not mean PC's are dead.

I love windows 8. I've used it since it was first available and now use it across desktop, laptop and several tablets (both RT and win8). What it does, it does fantastically, melding the ease of touch interface for casual use and the power of a desktop and familiar file management and peripheral support when you need to get work done. With that said, IMO, Microsoft has completely botched the marketing and presentation of the product. Here are some of my opinions on what they should have done.

1. They never should have made Metro the centerpiece of what Windows 8 was about and they never should have forced it on everyone. I like it, but there's no reason it couldn't have been optional. There are enough "under the hood" improvements in windows 8 for it to stand alone. OsX has gotten by for years by touting incremental improvements and IMO a lot of what is in windows 8 is better than just incremental and that doesn't even include the new UI. Let those who want it, keep their start menu and those who like metro use it. There's no reason they couldn't exist side by side.

2. Let apps and its unique integration and information-centric flow be the catalyst for driving people to use metro. Some people, like me, would instantly love it, the look, the usability and the live tiles, but that's not enough for many. Over time those people would find apps that fit them, they would see the coolness in the integration and before you knew it the new UI would be integrated in how people use computers and what they expect to be there. You would get strong, organic growth and people wouldn't feel forced.

3. Window RT should never have been named RT. It should have been called Windows 8 Tablet or something that makes more sense to the average person. Sell it as a "metro only" solution that only offers you a desktop for file management, but otherwise everything flows through Metro. Then with this they could sell the "bonus" of having any app you buy in the new UI available across all your devices, desktop, laptop or tablet. That would be seen as a value add, a feature and not something being forced on people.

4. Their marketing has yet to show me anything, beyond colorful tiles and flashy commercials, about how Windows 8 is supposed to change and evolve computing. When I use a Surface, what I find amazing about it is that I can sit at my desk and work in office just as I do on the dekstop or via RDP/Citrix, get real work done without buying apps or hacked on peripherals to feel like I'm using a business device. Then when I'm done I can flip the cover back, plop down on the sofa and use metro in a casual, touch-centric way, but in an instant I can go right back to getting real work done if needed. There isn't another device out there that does this, that caters to both natively, in such a seamless way.

5. This goes back to some of my other points, but if Metro had been billed as an add-on feature on everything except the RT tablets, it would set the stage for them to also integrate that into the xbox platform and again, this would be viewed as a huge value and option for people who want it.

6. There needs to be greater integration between Windows 8 across devices. The fact that there isn't any sort of "app sync" where you can designate some apps and their settings to automatically sync to all your devices is a huge let down.

7. Windows phone 8 needs to function more like windows 8's new UI and the integration between them should feel like the phone is really an extension of windows 8 and not another platform. You should be able to swipe down to kill an app, more familiarity.

Windows 8 gets Microsoft ahead of the game. Now Apple is lagging behind. MS has one OS core than spans all devices from smart phones, tablets, laptops, desktops, servers and game consoles. Apple does not have a touch enabled MacOS yet. MS will win when OEMs launch more win8 and touch optimized ultrabooks at a more affordable price. MacBook sales will drop until Apple launches a new touch enabled MacOS

@DriveHeadquarters I disagree, I have worked in IT for over 25 years, I have achieved and maintained Microsoft MCSE and MCDBA certifications since 1998. I have made my bread and butter predominantly in Windows IT shops since WFW 3.11. At one time you could have fairly called me a Windows fan boy.

In my review Windows 8 is the biggest catastrophe Microsoft has released yet, Balmer should be fired for it! Today I am a VP of IT systems and security at a healthcare company, I assure you none of our 800 desktops will ever upgrade to Windows 8. My peers in the IT field I know feel the same way. The start screen along with all the other convoluted nonsense in Windows 8 on a desktop system was the worst idea in a long history of bad ideas. I predict Microsoft will either back peddle it's OS or it will die.

@SomeGuySomeWhere@DriveHeadquarters What "convoluted nonsense" are you referring too? I agree that the new UI should have been optional, but beyond that (which I love btw) Windows 8 is great, has a lot of great features under the hood and is better than windows 7 in every way.

I just setup a new Windows 8 PC (desktop) for a customer. They were used to the older Windows interface. Their reaction? Confusion, followed by anger at Microsoft for forcing them to go through a fairly steep learning curve. Did I mention that they had been using various versions of Windows since version 3.1? I often repair computers, and have likewise been unimpressed by Windows 8. For a touchscreen tablet, maybe it's OK. But for the vast number of PC users out there, it sucks. Microsoft should have included a choice of interfaces for the user, Windows Classic, or the new one. It's typical of Microsoft. The did much the same thing when they brought out Office 2007. Their philosophy seems to be "We going to change whatever we want, when we feel like it, and if you can't keep up, too bad." I, for one, don't like it. Touch screens may be the future (and I'm fine with that), but I don't want Microsoft forcing me to buy one, or to punish me for keeping my mouse and keyboard. I'm keeping Windows 7.

Update: The customer I mentioned is so unhappy with Windows 8 that he's about ready to return the new PC to the store and go back to his old one. Pissing off your customer base is never a good idea. Remember New Coke?

The only 'agnst' is the one that journalists have when they don't have a real reason for maligning a new technology. Sure Windows 8 is different, but only because it needed to be. There have been tablet computers for years that didn't sell well at all. A new interface that worked well with touch had to be created. Because Microsoft, like most large companies, actually studied the problem with design professional and then tested it with focus groups and the largest preview program ever, Windows 8 will succeed.

It's taking time and sales aren't as good as Windows 7 for several reasons. One, the economy. Two, Vista needed a fresh look that separated the Windows OS platform into a newly named OS. So people bought it quicker. Three, many people held off of buying Windows 8 because it was released just before the shopping discounts were going to set in. Who would buy a new computer if two weeks later it would be on sale. Lastly, more and more touch screen systems will be out and some are waiting for the best of those to show up.

The Windows 8 interface is easier to work with that the old Start menu with it's cascading list of programs that get installed into the endlessly confusing list. As indicated at the end of this article, the Start screen is so easy to use, most people get accustomed to it quickly.

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